Last Updated: Jan 21, 2016
If you thought applying to college was stressful, applying for financial aid is even more daunting. Applying for financial aid can be challenging because you are sharing sensitive financial information on long and complicated forms.
As seniors and their parents put the final touches on their financial aid applications, learn from the following mistakes that many families make about financing a college education—even if you are not applying for financial aid.
Research financial aid while researching colleges
Most students and families believe this sequence: get into college first, then worry about paying later. Unfortunately, with the average cost of a four-year degree from a private college easily exceeding $160,000, students and parents should not only find schools that are the right fit academically and socially, but also financially. Unlike admission, where there is relative consistency in how one applies, there is greater variation in how financial aid and scholarship funds are administered from school to school. Also, nothing is more upsetting than when a child gets into his dream school and realizes that the college does not have the scholarships or financial aid available to make his educational dream a reality.
Realize that paying for college is a long-term investment
Due to the costs of education, many students and families regularly take out education loans to make an undergraduate education possible. Education loans are good! Paying for college is an investment, where you’ll reap the returns over time. Families and students should expect that it will take about 10 years to pay off their education loans. Stretching college payments make the high costs of college manageable for all families.
Liquidating assets to pay for college
Most families do not want to take education loans. On the other hand, education loans are the only loan that the Federal government provides families. Usually, government backed Stafford and Perkins loans do not collect interest while a student is in school. Also, government loans for parents (called PLUS loans) have a relatively low interest rate. In times of distress, students and parents can ask for forbearance on loans—this is usually not the case when a family misses a mortgage, car, or credit card payment.
I recommend using a balance of assets and loans to pay for college. Your financial manager can help you decide what balance is appropriate, keeping in mind short- and long-term goals. Do not liquidate all your assets to pay for college, under any circumstance. Some assets, particularly home equity and retirement accounts, should not be touched at all.
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